Are Standard Chartered PLC & HSBC Holdings plc A Bargain Right Now?

The shares of HSBC (LSE: HSBA) (NYSE: HSBC.US) are not a bargain at this price, but they will likely prove defensive to the end of the year. The same can’t be said about Standard Chartered (LSE: STAN) (NASDAQOTH: SCBFF.US) stock — which, however, could benefit for a change of leadership.

HSBC: A More Defensive Play Than Others


While many observers argue that HSBC shares are an opportunity too good to pass up based on their depressed trading multiples, I think the bank’s main attraction resides in the quality of its assets, which essentially appeal to buyers. Additional divestment of non-core operations is likely and will make HSBC a stronger bank, in my view.

A “progressive dividend policy” is another appealing element, although I don’t think HSBC’s payout ratio will rise significantly in the next 18 months. Meanwhile, emerging market risk remains a problem, and in more volatile market conditions, HSBC may struggle to deliver value to shareholders.

“Norway’s $880bn sovereign wealth fund, the world’s largest, is slowing its expansion into emerging markets as it scales back a two-year mission to tap into the fastest growing markets,” Bloomberg reported on Thursday. This is not good news for HSBC and the likes. 

Finally, dilution risk is less of an issue than at any other bank in the UK, but the possibility that HSBC may be forced to go for a rights issue also weighs on the bank’s valuation.

Since I wrote on 13 June that HSBC shares were worth a look, the bank’s equity valuation has risen by 4.2%, outperforming the FTSE 100 index by four percentage points. By comparison, Barclays stock is down 7.5%, while Standard Chartered stock is down 7.1%. The best performer over the period is Royal Bank Of Scotland, whose stock is up 5.8%, while Lloyds stock is up 2.7%.

What’s Wrong With Standard Chartered?

The shares of Standard Chartered are cheap for good reasons. Its capital ratios pose more questions than answers in this environment. Growth prospects have become less appealing in Asia, where Standard Chartered generates most of its business, and the bank’s reputation is in tatters.

The latest $300m fine from the New York’s Department of Financial Services did little to help confidence in the management team, although Standard Chartered stock has not been materially affected.

“It reinforces the disturbing impression that Standard Chartered’s top leaders are not on top of things,” the New York Times wrote this week. On Thursday, news emerged that the bank may face legal action by clients in the United Arab Emirates, too.

With regard to its US operations, and associated risks, on 1 July I noted that the bank had “problems in other parts of its business,” rather than in the US, where exposure isn’t significant. Well, I was wrong, and the broader implications of recent events must not be underestimated. Standard Chartered is faced with several headwinds, but just as the investor community ask for drastic changes, the announcement of a new boss may provide a fillip to the stock.

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Alessandro Pasetti has no position in any shares mentioned. The Motley Fool UK owns shares of Standard Chartered. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.